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MAINE COMPASS: Tax reform gives 95% of Mainers an income tax cut; don’t repeal it

I will vote “no” on Question 1 in June because it will give 95 percent of Maine residents tax relief.

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A “no” vote will move Maine away from being a high income-tax state, and it is the most significant tax legislation to be enacted in the last 40 years.

In a recent column on this question, George Smith expressed concern about services that would be subject to the broadened sales tax.

This is a valid concern, but he neglected to mention that more than 95 percent of Maine resident taxpayers would get an income tax cut under the new law, and nearly 90 percent would realize a net reduction in overall taxes paid to the state, according to an analysis by the Maine Revenue Service.

 Question 1 would repeal “An Act to Implement Tax Relief and Tax Reform,” which was enacted by the Legislature last year. Repeal would be a huge step backwards.

This landmark legislation provides genuine tax relief to Maine taxpayers, encourages badly needed business investment and job creation and improves our image nationally.

If the new law is repealed, the maximum income tax rate will increase by 30 percent.

The new law partly pays for the income tax cut by requiring nonresidents and visitors to pay a fairer share of taxes through a modest increase in the meals and lodging tax. Currently, Maine has one of the lowest meals and lodging taxes in the country. With the new tax structure, it would rise from 7 percent to 8.5 percent, still below the 9 percent tax in both Vermont and New Hampshire.

I have a hard time telling my employees that they should pay one of the highest income tax rates in the country because wealthy visitors need a break. Something is very wrong with that picture.

Additionally, the sales tax was broadened to include entertainment and certain personal property and repair services. This begins to offset the unhealthy reliance on revenue generated by the sales tax on cars and building materials, which make up more than 30 percent of that tax. In economic down times, this is especially dangerous as those areas are particularly hard hit, leaving a big budget hole.

The new law is revenue-neutral, meaning that changes to the income and sales tax will result in the same amount of total revenue to the state.

The Maine Revenue Service estimates that the new law reduces the tax burden on Maine residents by approximately $53 million, most of which is “exported” to nonresident taxpayers and visitors.

This decrease in Maine’s overall resident tax burden will pump more money into Maine’s economy and reduce incentives that drive some Mainers to leave the state. It  also will make Maine more competitive for business attraction and investment.

The lower rate directly supports small business (since most small businesses are partnerships or S-corps that pay taxes through individual income tax).

 With passage of this landmark legislation, Maine immediately received national recognition for lowering income taxes during difficult times. The perception of Maine as a high-taxed state is changing. Maine’s tax base will remain competitive in the areas where it is already, and become more competitive in others.

Maine still would have a lower sales tax rate (5 percent) than the national average (5.75 percent), our meals and lodging tax still would be far below that of most travel destinations, and Maine still would have a narrower sales tax base than most states.

 Finally, Maine’s future tax revenues will be more stable. Lowering the capital gains rate and broadening sales tax base will reduce volatility of state tax revenues and support a more stable budget.

 We all have heard the litany of complaints about high taxes in Maine. This tax reform referendum is historical, a genuine “game-changer,” and we must not lose the opportunity it presents.

If you want lower income taxes to help grow Maine’s economy and lower net state taxes overall on Maine resident taxpayers, please vote “no” on Question 1.

Charles “Wick” Johnson, CEO of Augusta-based Kennebec Technologies, is chairman of No Higher Taxes for Maine, a registered political action committee created to promote tax relief and tax reform, and to oppose Question 1.